Should Apple Buy YouTube?

By Eric Savitz

As most know, with the exception of iTunes, Apple has been a laggard when it comes to the web. But buying YouTube, Steve Jobs could leapfrog to the top of the heap. After all, he would end up with immediate presence within the ranks of the top 50 web properties (one that’s still growing at a rapid clip).

YouTube would also, for the first time, give Apple a platform to tap into the highly-coveted stream of online ad revenues, particularly within the fast-growth, high-CPM video ad segment. And by owning a leading platform for user-created content, distribution, and social networking, Jobs could fill in nearly all of Apple’s strategic holes (vs. web competitors) in one fell swoop.

But to assess the real (near-term, material) value of such a deal for Apple, let’s go back to iTunes. As we all know by now, the success of iTunes is rooted in its tight integration with the iPod, both in terms of its end-to-end user experience as well as its razor-and-blade business model. On the latter, Steve Jobs proved his brilliance by sacrificing digital music profits and making it up with sales of his high-margin iPods. The result has been market dominance 75% market share. But sales are slowing, and he needs a new catalyst.

Enter YouTube. The online video phenom can be to the video iPod what iTunes was to the audio iPod. It’s not difficult to imagine mass consumers, especially tweens, downloading their playlists of YouTube video snacks and viewing them on the go with their video iPods.

Well, maybe…although given Apple’s hard-core stance on digital rights, and YouTube’s reliance on pirated content…seems hard to imagine. I’d also note that Apple has never been especially acquisitive, and it is hard to see why this would be an exception to the rule.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.